Friday, September 2, 2011

Help Wanted!

We thought the employment numbers may come in below expectations, but a big fat zero for non-farm payroll (NFP) employment was a surprise. Given Bernanke's promise, we didn't think the market would react this negatively if the NFP figure was non-negative, but then again, a zero is nothing to write home about. We note that the bad news was made worse as the NFP numbers for June and July were revised down significantly. June's figure went down to 20K net jobs added from 46K, and July was revised down to 85K from 117K. This may help further explain the market's early reaction to the job numbers.

Most private NFP figures were either unchanged or increased in August, resulting in a net 17K for the month. Manufacturing declined slightly by 3K, while information technology dropped by 48K, of which 45K was due to the VZ strike. However, even if we add the VZ number to private NFP, the resulting 62K would still be well below the 100K Street consensus.

Government NFP declined 17K, slightly less than the 25K estimate.

We also noticed somewhat of a bad combination - lower average workweek for private NFP employees and only a 1.9% increase in average hourly earnings during the last 12 months. Lower workweek indicates lower demand for production and/or services. In addition, the hourly earnings growth trails the 12-month inflation which is above 2% currently. These two basically are not very good news for the job market and overall consumption.

In terms of the market, after crossing 1,200 and reaching around 1,220 earlier this week, given what seems to be a pull-back today, 1,250 for S&P 500 doesn't appear realistic.  The next support level is around 1,175 - 1,180.  If the market goes below that level, with Bernanke's promise, we're not sure if it will really test the YTD lows of 1,115 - 1,120 from now until end of Sept.  Then again, as mentioned before, because QE2 did not stimulate the economy, doubts regarding effectiveness of QE3 may override a possible short-term boost it may give to the equity market. 

Lastly, we thought to comment on a recent report that President Obama "pulled back proposed new national smog standards".  He basically told the EPA ... you-know-what.  This is surprising given Obama's image as a liberal.  Then again, he is a politician and the elections are ONLY about 14 months away.  We don't have an opinion on the right or left, or on the smog standards and/or their impacts on the economy, government spending, etc.  However, we must say that politicians of all kinds (with maybe one or two exceptions) will do or say anything to get elected.  Of course, everyone already knows this.


  1. does the "one or two exceptions" refer to Ron Paul??

  2. Good point! He is one of them, but you also got Bernie Sanders of Vermont, and even Ohio's Dennis Kucinich. Whether you agree with any of them is another question ... the main thing is that they've been more consistent in what they stand for and propose less election-driven ideas. Have a good weekend! LABOR DAY!